I paid the coal severance surtax while finalizing a contract, then registered the contract — can I still get the surtax exemption for coal I sold before registration?

Plain-English summary

In 1990 New Mexico created an exemption from the coal severance surtax (Section 7-26-6.2) to encourage new coal production — letting producers offer more competitive prices on coal sold under qualifying new contracts. A condition of the exemption (Subsection D) is that the producer must register the qualifying contract with the Department "prior to taking the exemption."

Pittsburgh & Midway Coal Mining Company (which had reopened the York Canyon Mine near Raton and had helped push for the exemption) signed a letter of intent in November 1992 to supply coal to Arizona Electric Power Cooperative (AEPCO) and began delivering coal that December while the parties negotiated a full contract. The final contract took effect in June 1993. Throughout the negotiation period, the company paid the coal severance surtax on all the AEPCO coal.

After the contract was finalized, the company registered it (the Department approved registration in July 1993), then filed amended returns and a refund claim (Form RP-16) for the surtax it had paid on the earlier deliveries. The Department granted part of the refund but denied about $452,303 for coal delivered before the AEPCO contract was registered, taking the position that the exemption can only reach coal sold after registration.

Hearing Officer Gerald Richardson granted the protest and ordered the refund:

• The earlier coal was sold under the registered contract (merger). Under the doctrine of merger (Superior Concrete Pumping v. David Montoya Construction), a preliminary agreement merges into the final contract when they reference each other, involve the same parties and subject, and the parties so intend. The letter of intent and the final contract cross-referenced each other, and the contract's Section 3.1 folded the pre-effective-date coal into the first contract year. So the coal sold under the letter of intent counted as sold under the registered final contract.
• "Prior to taking the exemption" means before claiming it. The statute was genuinely ambiguous, so it had to be construed to match the Legislature's purpose. That purpose — encouraging new coal while protecting existing surtax revenue — is carried out by Subsection A's timing windows (a four-year delivery window; a 2009 sunset) and by Subsection D's anti-circumvention sentence. The registration requirement exists to ensure the Department can confirm the coal qualifies, not to police when a producer claims the exemption. So it requires registration before a claim is made — not an absolute bar to exempting coal sold before registration.
• The company complied and claimed in time. It paid the surtax, waited until after registration to claim the exemption, and filed its refund claim within the three-year limit in Section 7-1-26. That met the letter of the law.
• No estoppel, but a telling inconsistency. The Department's approval letters weren't a "ruling or regulation," so Section 7-1-60 estoppel didn't apply, and equitable estoppel against the State applies only where "right and justice demand it" (Bien Mur) — not here, given ambiguity in the company's own letters. Still, the Department had repeatedly approved registrations for "All" amounts without objecting to prior-period claims, which supported the reasonableness of the producer's reading.

What this means for you

Coal producers claiming the surtax exemption

Registering your qualifying contract is a gate you must pass before you claim the exemption — but this decision holds it is not a deadline that forfeits the exemption on coal you sold while a contract was still being finalized. The safe path is exactly what this producer did: pay the surtax while negotiating, register the contract once it's final, then claim a refund (amended returns plus Form RP-16) for the qualifying coal, all within the three-year refund window in Section 7-1-26.

Anyone selling under a letter of intent that becomes a contract

If you begin performing under a letter of intent that later merges into a signed contract, the earlier transactions can be treated as made under the final contract — which matters when a tax benefit attaches to "the contract." Draft the final agreement to reference the letter of intent and fold in the earlier deliveries (as the AEPCO contract did) so the merger is clear.

Accountants and tax professionals

Two durable points: (1) a registration/approval condition phrased as "prior to taking the exemption" is read here as tied to the claim, construed against an absolute-bar reading where the statute's purpose is qualification, not claim-timing; and (2) don't expect estoppel against the Department from mere approval letters — Section 7-1-60 needs a regulation or a written ruling, and equitable estoppel needs "right and justice." The refund statute of limitations (Section 7-1-26) is what actually preserves the claim.

Common questions

Q: I paid the coal surtax before my contract was registered. Is that money lost?
A: Not under this decision. As long as the coal qualifies, the contract is later registered, and you claim your refund within the three-year window in Section 7-1-26, the exemption can reach coal sold before registration.

Q: My coal shipped under a letter of intent, not the signed contract. Does it still count?
A: It can. If the letter of intent merges into the final contract — because they reference each other and the parties intend the earlier deliveries to be covered — the coal is treated as sold under the final, registered contract.

Q: The Department approved my registration without objecting. Am I protected by that?
A: Not by estoppel. Approval letters aren't a ruling or regulation, so they don't bind the Department under Section 7-1-60, and equitable estoppel against the State is rare. Your real protection is claiming within the Section 7-1-26 refund period.

Citations and references

Statutes:

• § 7-26-6.2 NMSA 1978 — exemption from the coal severance surtax for qualifying contracts; Subsection D's contract-registration requirement and anti-circumvention rule
• § 7-26-6 NMSA 1978 — the coal severance tax and coal severance surtax
• § 7-1-26 NMSA 1978 — three-year period for filing refund claims
• § 7-26-8 NMSA 1978 — severance tax for a month is reported and paid by the 25th of the following month
• § 7-1-60 NMSA 1978 — estoppel against the Department requires a regulation or a written ruling to the taxpayer
• § 7-1-24 NMSA 1978 — a taxpayer's right to file a written protest (basis for jurisdiction)

Cases cited:

• Superior Concrete Pumping, Inc. v. David Montoya Construction, Inc., 108 N.M. 401, 773 P.2d 346 (1989) — doctrine of merger of a preliminary agreement into the final contract
• State ex rel. Newsome v. Alarid, 90 N.M. 790, 568 P.2d 1236 (1977) — a statute is construed to accomplish the Legislature's intent
• Schmick v. State Farm Mutual Automobile Insurance Co., 103 N.M. 216, 704 P.2d 1092 (1985) — courts look to the object sought and the wrong to be remedied
• Taxation & Revenue Department v. Bien Mur Indian Market Center, Inc., 108 N.M. 228, 770 P.2d 873 (1989) — equitable estoppel applies against the State only where right and justice demand it

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Pittsburgh & Midway Coal Mining Company
• Decision PDF: D&O 95-03

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
PITTSBURGH & MIDWAY COAL MINING COMPANY,
I.D. NO. 01-765016-00, PROTEST TO DENIAL
OF CLAIMS FOR REFUND. No. 95-03

DECISION AND ORDER

This matter came on for hearing on December 15, 1994 before Gerald B. Richardson,

Hearing Officer. Pittsburgh & Midway Coal Mining Company (hereinafter "Taxpayer") was

represented by Mark F. Sheridan, Esq. and Michael B. Campbell, Esq. of Campbell, Carr, Berge &

Sheridan, P.A. The Taxation and Revenue Department (hereinafter "Department") was

represented by Frank D. Katz, Chief Counsel, and Margaret B. Alcock, Special Assistant Attorney

General. At the close of the hearing, a briefing schedule was set and the final briefs were filed on

March 24, 1995 and the matter was considered submitted for decision at that time. The parties

have agreed that the Hearing Officer may have 60 days to render his decision in this matter.

Based upon the evidence and arguments presented, IT IS DECIDED AND ORDERED as

follows:

FINDINGS OF FACT

1. In 1990, the New Mexico legislature passed Senate Bill 208, enacted as Laws 1990,
   Ch. 84 § 1, codified now as § 7-26-6.2 NMSA 1978, providing for an exemption from the coal

severance surtax for coal sold under contracts that meet certain conditions.

2. During the legislative process, the Department submitted a Bill Analysis and Fiscal

Impact Report to the legislature concerning Senate Bill 208, which stated that, "[I]t will be
necessary to require coal producers to register qualifying contracts with the Taxation and Revenue

Department in advance of claiming the lower tax rate." In submitting this comment to the
legislature, the Department was expressing its concern that it have sufficient information from a
taxpayer claiming the surtax exemption to determine whether the coal for which the exemption was

claimed was sold under contracts which qualified the coal for the exemption. Department

personnel then participated in drafting the language of an amendment to Senate Bill 208 which

became Subsection D of § 7-26-6.2 which addresses the registration of contracts for the sale of coal

for which exemption from the surtax is claimed.

3. The Taxpayer was also involved in the legislative process resulting in the enactment

of § 7-26-6.2. Prior to the 1990 legislative session the Taxpayer had acquired the York Canyon

Mine near Raton, New Mexico. The mine was not operating, and because the coal market was so

highly competitive, the Taxpayer had sought legislation providing for an exemption from the coal

severance surtax so as to be able to compete more effectively with coal from other states by

lowering the price it charged. To accomplish this goal, the Taxpayer had assisted in drafting

Senate Bill 208 as it was originally introduced.

4. The coal surtax exemption became effective July 1, 1990. In order for coal sales to

qualify for the exemption, certain criteria had to be met. The coal had to be sold and delivered

either pursuant to a contract entered into on or after July 1, 1990 under which deliveries began after

July 1, 1990 and before June 30, 1994 (provided the contract was not the result of renegotiation or

other action designed to make sales under existing contracts eligible for the exemption) or; pursuant

to a contract in effect on July 1, 1990 if the coal delivered was in excess of the average calendar

year deliveries under the contract during years 1987, 1988 and 1989 or in excess of the contract

minimum, whichever was greater. Additionally, prior to taking the exemption, the contract under

which the coal was sold had to be registered with the Department.

5. The Taxpayer entered into a letter of intent, dated November 24, 1992, for a

proposed supply contract with Arizona Electric Power Cooperative, Inc. ("AEPCO"). The

Taxpayer began making deliveries of coal to AEPCO pursuant to the letter of intent in December,

1992. There ensued a lengthy negotiation period between the Taxpayer and AEPCO to work out the

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final terms of the contract for the sale and delivery of coal. During those negotiations the letter of

intent was amended on February 25, 1993, April 23, 1993 and June 2, 1993. The contract was

finalized and entered into effective June 11, 1993.

6. Pursuant to Section 3.1 of the AEPCO contract, all coal purchased by AEPCO from

the Taxpayer prior to the effective date of the contract pursuant to the November 24, 1992 letter of

intent and its amendments was deemed to be coal purchased during the first contract year of the

contract. It was the intent of the parties to the contract that by this provision, that all of the tonnage

that had been sold prior to the effective date of the contract under the letter of intent would be

subject to the terms and conditions of the contract and would be included within the contract.

7. Until the AEPCO contract was finalized, the Taxpayer reported and paid the

Department the coal severance surtax each month from December 1992 through June, 1993 on all

of the coal sold and delivered to AEPCO.

8. The Taxpayer never sought to have the November 24, 1992 letter or intent or its

amendments registered with the Department for purposes of claiming the coal severance surtax

exemption.

9. On July 21, 1993, the Taxpayer filed an application for registration of its contract of

June 11, 1993 with AEPCO with the Department for purposes of claiming the coal severance surtax

exemption.

10. On July 27, 1993, the Department approved for registration the Taxpayer's contract

with AEPCO.

11. On September 17, 1993, the Taxpayer submitted to the Department amended coal

severance tax returns for the period of December 1992 through June, 1993, together with the

Department's application form for tax refund, Form RP-16, requesting refunds totaling $889,938.80

based upon the Taxpayer's claim of exemption from coal severance surtax for coal sold pursuant to

its contracts with AEPCO and Arizona Public Service Company.

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12. On September 29, 1993, the Department denied the Taxpayer's claims for refund on

the basis that coal deliveries prior to the contract date of June 11, 1993 were not tax exempt from

coal severance surtax.

13. On October 26, 1993, the Taxpayer filed a written protest with the Department

protesting the Department's denial of its claims for refund of coal severance surtax.

14. On December 30, 1993, the Department wrote the Taxpayer informing it that based

upon additional information submitted in the Taxpayer's protest letter, it had determined that the

Taxpayer was entitled to a refund of $437,635.73, attributable to coal sales to the Arizona Public

Service Company based upon the fact that contract had been accepted for registration by the

Department in November, 1990, prior to the date of the coal deliveries at issue. The Department's

letter further informed the Taxpayer that the remaining portion of its refund claim, in the amount of

$452,303.07 based upon the Taxpayer's claim of the coal surtax exemption for sales under the

AEPCO contract remained denied on the basis that the right to claim the coal surtax exemption runs

from the date the contract is registered with the Department and no contract or letter of agreement

was registered with the Department until July, 1993.

15. On a number of occasions subsequent to July 1, 1990, the Taxpayer, by letter,

requested that the Department accept for registration various coal sales contracts for the purposes of

claiming the coal surtax exemption. The Taxpayer's letters, in addition to requesting registration,

informed the Department that the Taxpayer intended to file its severance tax returns for periods

prior in month to the date of the letter requesting registration at the tax rate which excludes the coal

severance surtax. In responding to the Taxpayer's requests for registration, the Department

approved the registration of the contracts and indicated under the column "Amount Approved",

"All". The Department's letters approving the contracts did not respond directly to the Taxpayer's

statement of its intent to claim the coal severance surtax exemption for periods which would

necessarily have occurred prior to the date of the Department's registration of the contracts.

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DISCUSSION
The issue presented herein, upon which the Taxpayer's entitlement to the coal severance

surtax exemption turns, is the proper interpretation of Section 7-26-6.2(D) NMSA 1978, which

provides:
[T]he taxpayer, prior to taking the exemption provided by this section, shall register
any contract for the sale of coal that qualifies for the exemption from the surtax
under the provisions of this section with the taxation and revenue department on
forms provided by the secretary. If upon examination of the contract or upon audit
or inspection of transactions occurring under the contract the secretary or the
secretary's delegate determines that any person who is a party to the contract has
taken any action to circumvent the intent and purpose of this section, the exemption
shall be disallowed. (emphasis added).

The Department interprets the provision requiring contract registration, "prior to taking the

exemption", as an absolute bar in the nature of a statute of limitations applying to any claim for

exemption for coal sold pursuant to a contract which is accepted for registration with the

Department if the coal was sold and delivered prior to the date the Department actually registers the

contract. The Taxpayer interprets the provision more broadly, as being a provision designed to

ensure that the coal for which the surtax exemption is claimed was sold under a contract which

meets the qualifying conditions of the statute, but once the contract is determined to qualify, coal

sold under the contract may be exempted, even if it was sold before the Department accepted the

contract for registration. The Taxpayer argues that it complied with the statute in this case because
it did not claim the exemption when it filed its original coal severance tax returns, but only claimed

it after the contract was registered, by filing amended coal severance tax returns and the claims for

refund that are at issue herein.

Before resolving the issue of the interpretation of the statute, a preliminary issue to be

determined is whether the coal sales for which exemption is claimed were sales pursuant to the

AEPCO contract which the Department later accepted for registration. The Department contends

that the letter of intent, with its binding provisions concerning confidentiality and test burning of the

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coal, amounted to a contract which could have been registered to cover the sales of coal made under

the letter of intent. While this may be true1, it is immaterial if the former letters of intent become

merged into the final contract, in which case, the final contract would cover the sales under the

letter of intent. The doctrine of merger is a contract principle which establishes that prior

agreements between the same parties on the same subject matter are presumed to be included in, or

merged into the final contract, especially when it appears to be the intent of the parties to do so.

Superior Concrete Pumping, Inc. v. David Montoya Construction, Inc., 108 N.M. 401, 773 P.2d

346 (1989). In this case, the "approval" portion of the letter of intent clearly references the parties

obligation to negotiate in good faith a comprehensive coal supply contract and makes clear that the

letter of intent is but preliminary to a final agreement on the sale of coal. Similarly, Section 3.1 of

the final agreement makes reference to coal sold under the November 24, 1992 letter of agreement

and its amendments and includes such coal in the tonnage covered during the first year of the

contract. Additionally, there was uncontroverted testimony from Mr. Gardner, Senior Counsel for

the Taxpayer who was very involved in the contract negotiations, that the Taxpayer and AEPCO

intended that the coal sold prior to the effective date of the AEPCO contract pursuant to the letter of

intent would be subject to and included in the final contract. Given that the contract and the letter

of intent clearly refer to each other and concern the same subject matter and parties and given the

testimony concerning the intent of the parties, it is concluded that the letter of intent and the final

contract should be merged. Thus, any coal sold under the letter of intent is considered to be sold

under the final contract. Since the final contract was accepted for registration by the Department,

the coal sold pursuant to the letter of intent otherwise qualifies for exemption from the coal

severance surtax, if the other conditions of § 7-26-6.2 are met.

We turn now to the construction of § 7-26-6.2(D). The fact that the two parties have come

up with plausible but inconsistent interpretations of the provision amply demonstrates that there is
1
Since the Taxpayer never sought registration of the letter of intent, no opinion on this issue is intended, nor is it necessary for
purposes of this decision.

6
an ambiguity in the statute which requires that the statute be construed. It is a fundamental

principle of statutory construction that a statute should be interpreted to mean that which the

legislature intended it to mean and to accomplish the ends sought to be accomplished by it. State

ex rel. Newsome v. Alarid, 90 N.M. 790, 568 P.2d 1236 (1977). Thus, the exercise of statutory

construction is one of attempting to discern the legislative intent. In ascertaining legislative intent,

courts will look not only to the language used in the statute, but also to the object sought to be

accomplished and the wrong to be remedied. Schmick v. State Farm Mutual Automobile

Insurance Co., 103 N.M. 216, 704 P.2d 1092 (1985). In looking at § 7-26-6.2 NMSA 1978 (1990

Repl. Pamp.) itself, it creates, until July 1, 2009, an exemption from the coal surtax for coal sold

under certain coal sales contracts. Subsection A describes the contracts which are eligible:
(1) coal sold and delivered pursuant to coal sales contracts that are entered into
on or after July 1, 1990, under which deliveries start after July 1, 1990, and before
June 30, 1994, if the sales contracts are not the result of:

(a) a producer and purchaser mutually rescinding an existing contract and negotiating a
revised contract under substantially similar terms and conditions;

(b) a purchaser establishing an affiliated company to purchase coal on behalf of the
purchaser; or
(c) a purchaser independently abrogating a contract that was in effect on July 1, 1990, with a
producer for the purpose of securing the benefits of the exemption granted by this
section; and

(2) coal sold pursuant to a contract in effect on July 1, 1990, that exceeds the
average calendar year deliveries under the contract during production years 1987,
1988 and 1989 or the contract minimum, whichever is greater.

Thus, the exemption would be available only for coal sold under new contracts which are truly new

contracts and not merely the result of the parties renegotiating or rescinding existing contracts in

order to avail themselves of the tax break. Additionally it is available for coal sold under existing

contracts if the coal sold exceeds the greater of the average deliveries in years prior to the enactment

of the surtax exemption, or the contract minimum.

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Subsection B applies similar limitations on claiming the exemption. If a contract existing

on July 1, 1990 is renegotiated prior to the end of its term, the surtax applies to the remainder of the

contract term. Additionally if the contract would have expired during the period between July 1,

1990 and June 30, 1994, the exemption would only apply after the last date that the contract would

have been in effect.

Subsection C of the statute also contains limitations which operate to ensure that there is no

abuse of the allowance of the exemption for sales under existing contracts in excess of the amounts

qualified under Subsection A(2).

An examination of the limitations imposed upon which coal is eligible for the surtax

exemption leads one to conclude that the legislature intended that only coal sold under new

contracts, or coal sold in excess of average deliveries under existing contracts would be eligible for

the deduction. This construction is consistent with the intent urged by the Taxpayer (who assisted

in drafting this legislation) that the purpose of the surtax exemption was to encourage the sales (and

mining) of new coal which would not otherwise be mined under existing contracts and which

would not be sold under new contracts unless the seller could offer a more competitive price

because of the exemption from the surtax. The operation of the statute also served to preserve

existing surtax revenue streams for the state. Thus, by creating the exemption, the state was

preserving its expected surtax revenues, but was forgoing new surtax revenues on new coal

production. Because the exemption only applied to the coal severance surtax, and not to the coal

severance tax itself2, by encouraging new coal production, the state would still stand to gain by the

severance taxes collected on the new coal mined.

Thus, it would appear that the legislature's purpose in enacting § 7-26-6.2 was to encourage

the production of new coal in New Mexico by allowing coal producers to offer lower prices on such

coal by exempting such coal sales from the coal severance surtax. In granting the exemption the

2
Both the coal severance tax and the coal severance surtax may be found at § 7-26-6 NMSA 1978.

8
legislature was careful to protect its existing revenue stream and to word the exemption very

carefully to ensure that the exemption would only apply to coal which was mined under entirely

new contracts which were not subterfuges representing renegotiated old contracts or contracts

involving related parties to existing contracts; or if the coal was sold under an existing contract, the

exemption would only apply to amounts in excess of what would have reasonably been expected to

be sold under the existing contract. This interpretation finds further support in the second sentence

of Subsection D, which provides:
If upon examination of the [registered] contract or upon audit or inspection of
transactions occurring under the contract the secretary or the secretary's delegate
determines that any person who is a party to the contract has taken any action to
circumvent the intent and purpose of this section, the exemption shall be disallowed.

It is in the context of this legislative intent that the first sentence of Subsection D, which requires a

taxpayer, "prior to taking the exemption" to register the contract for the sale of qualifying coal, must

be construed. In this context, it would appear that the legislature's overriding concern in requiring

the registration of contracts was with ensuring that the coal for which the exemption is claimed

qualified for the exemption, rather than with the timing of the claim for the exemption. Although

the legislature was obviously concerned with the time periods for which the exemption could be

claimed, those concerns are expressed in Subsection A, which provides a 4 year window to
commence shipments of coal sold under new contracts, and in the sunset provision limiting the

exemption until July 1, 2009.
In construing Subsection D, it is also noteworthy that the provision was added during the

legislative process at the Department's behest, as reflected in the Bill Analysis and Fiscal Impact
Report submitted to the legislature during its consideration of the proposed legislation. The

Department participated in drafting subsection D, and according to Mr. White, who was part of the
Department's legislative team, the Department's concern in suggesting the need for registration of

the contracts in advance of claiming the exemption was that the department have sufficient

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information from a taxpayer to determine whether the coal for which the exemption was being

claimed was, in fact, being sold under contracts which were exempt from the surtax. This concern

goes to the qualification issue rather than to a concern about the actual timing of a taxpayer's claim

of the exemption vis-a-vis when the actual shipments for which the exemption is claimed were

made, and supports the Taxpayer's interpretation of the statute.

From the record, it also appears that the Department may not have always applied the

interpretation it now urges. On several occasions, when writing to request the registration of other

coal sales contracts, the Taxpayer's letters, in addition to requesting registration, informed the

Department that the Taxpayer intended to file its severance tax returns claiming the surtax

exemption for periods prior in month to the date of the letter requesting registration. The

Taxpayer's letters only referred to severance tax for a particular month, and the letters were not clear

as to whether the reference to month indicated the month for which the report would be filed or the

month in which the report would be due. Under the severance tax statutes, the taxes for a month in

which sales occur must be reported and paid by the 25th day of the following month. See, Section

7-26-8 NMSA 1978. Thus, there is some ambiguity in the Taxpayer's letters. Even so, at least

with respect to the Taxpayer's letter of January 23, 1991, which informed the Department that it

intended to claim the exemption for November, the return would be due, at the latest, on December

25, 1991, and even if the return would be filed late, it would reflect sales occurring prior to any

conceivable date by which the Department could have given approval to the contract.

In responding to the Taxpayer's letter, the Department made no direct response to the

Taxpayer's statement informing the Department of its intent to claim the exemption for periods

prior to registration of the contract, but merely informed the Taxpayer of its registration of the

contract and under the column "Amount Approved," indicated "All."

The Department urges that it is not now estopped from denying the Taxpayer's claims for

prior exemption based upon its failure to inform the taxpayer that claims for coal delivered in

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periods prior to contract approval would be improper. I agree that the Department's letter does not

amount to a ruling or regulation as required for estoppel under the terms of § 7-1-60 NMSA 1978.

I also agree that equitable estoppel should not be applied against the Department in this instance,

because it is only applied against the state in the limited circumstances where "right and justice

demand it," Taxation & Revenue Department v. Bien Mur Indian Market Center, Inc., 108 N.M.

228, 230, 770 P.2d 873 (1989). Here, because of the ambiguity of the Taxpayer's letter concerning

whether the month referenced indicated a reporting period or a filing month, right and justice do not

demand the application of equitable estoppel. Furthermore, although as a matter of good tax

policy, it behooves the Department to inform a taxpayer to the contrary when it appears the

taxpayer would be making an unauthorized claim for exemption, there is no requirement that it do

so. It should be recognized that not every Department employee will always be aware of matters of

legal interpretation or statutory construction.

Even though estoppel does not apply against the Department in this instance, however, the

Department's letters approving for registration the full contract amounts under these circumstances

may indicate that the Department's interpretation of the provisions of § 7-26-6.2 had not yet been

determined. Additionally, it lends some support to the reasonableness of the interpretation urged by

the Taxpayer in this instance.

From all of the above, I am persuaded that Section 7-26-6.2(D) should be construed to only

require that the Taxpayer secure the Department's approval of the contract prior to claiming the

exemption, which criteria the Taxpayer has met in this case by submitting its claim of exemption

within the statutory time limits for filing amended returns, and it should not be construed as the

Department contends, as an absolute bar to any claim of exemption for time periods occurring prior

to the date of the registration of the contract by the Department. This construction is consistent

with the legislature's concern that only qualifying coal be exempted, but it does not impose

requirements which would exclude from exemption coal sales which would otherwise qualify

11
except for the timing of a taxpayer's securing of registration. I also believe that the Taxpayer has

met the letter of the law by awaiting its claim of exemption until after it received registration of the

contracts by the Department. In this regard, the Taxpayer has also fulfilled the Department's

procedural requirements for claiming its exemption, by filing the Department's form RP-16

applying for a refund of the coal severance surtax paid and filing amended returns, all within the

statute of limitations for filing such refund claims pursuant to Section 7-1-26 NMSA 1978. Thus,

even if the exemption is construed strictly, the Taxpayer has proven itself to fall within the express

language of the exemption. In arriving at this construction I have not attempted to determine

whether the requirement is "procedural" or "substantive" because I, too, find the distinction to be

elusive, difficult to characterize and generally unhelpful to this analysis.

I am also unpersuaded by the Department's concerns that the construction urged by the

Taxpayer is contrary to public policy because it makes it difficult for the Department to accurately

predict revenue streams for the legislature. Although it is conceded that the granting of this refund

will impact upon revenue streams already accounted for, this result is no different than any other

instance where taxpayers file refund claims within the statute of limitations provided in Section

7-1-26. Refund claims can be generated by changes in the law as interpreted by the courts of this

and other jurisdictions, and other somewhat unpredictable events. Nonetheless, the legislature has

provided for a three year time frame in which such claims may be made. In doing so, the

legislature has acknowledged a degree of uncertainty in counting on revenue already collected, but

it has determined to strike a balance between its need for certainty and fairness to taxpayers by

providing a limited time frame within the provision for claiming refunds, for making such claims.

Thus, the legislature has stated its public policy and it made no explicit exception to that policy with

respect to a taxpayer's ability to claim refunds of the coal severance surtax in either §§ 7-1-26 or in

7-26-6.2.

CONCLUSIONS OF LAW

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1. The Taxpayer filed a timely, written protest to the Department's denial of its claims

for refund, pursuant to Sections 7-1-24 and 7-1-26 NMSA 1978 and jurisdiction lies over both the

parties and the subject matter of this protest.

2. The letter of intent between the Taxpayer and AEPCO, and its subsequent

amendments was merged into the final contract between those parties. Thus, the coal sold

pursuant to the terms of the letter of intent and its amendments was coal sold under the final

contract.

3. The Department is not estopped from arguing the interpretation of § 7-26-6.2 urged

herein by its responses to the Taxpayer's requests for the registration of other coal sales contracts.

4. The legislative intent in enacting Subsection D of Section 7-26-6.2 was to ensure

that the coal surtax exemption could only be claimed for coal sales made pursuant to contracts

which the Department had reviewed and approved as qualifying contracts.

5. The Taxpayer obtained the Department's approval and registration of its contract

with AEPCO prior to claiming the coal surtax exemption for its sales pursuant to that contract and

therefore the Taxpayer met the requirements of Section 7-26-6.2(D) and was entitled to claim the

coal severance surtax exemption on such sales by filing a claim for refund of the coal severance

surtax.

For the foregoing reasons, the Taxpayer's protest IS HEREBY GRANTED. The

Department IS HEREBY ORDERED TO GRANT THE TAXPAYER'S REFUND CLAIM.

DONE, this 23rd day of May, 1995.

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